Osteoclasts are multinucleated haematopoietic cells that resorb bone. Increased osteoclast activity causes osteoporosis, a disorder resulting in a low bone mass and a high risk of fractures. Increased osteoclast size and numbers are also a hallmark of other disorders, such as Paget's disease and multiple myeloma. The protein c-Fos, a component of the AP-1 transcription factor complex, is essential for osteoclast differentiation. Here we show that the Fos-related protein Fra-2 controls osteoclast survival and size. The bones of Fra-2-deficient newborn mice have giant osteoclasts, and signalling through leukaemia inhibitory factor (LIF) and its receptor is impaired. Similarly, newborn animals lacking LIF have giant osteoclasts, and we show that LIF is a direct transcriptional target of Fra-2 and c-Jun. Moreover, bones deficient in Fra-2 and LIF are hypoxic and express increased levels of hypoxia-induced factor 1alpha (HIF1alpha) and Bcl-2. Overexpression of Bcl-2 is sufficient to induce giant osteoclasts in vivo, whereas Fra-2 and LIF affect HIF1alpha through transcriptional modulation of the HIF prolyl hydroxylase PHD2. This pathway is operative in the placenta, because specific inactivation of Fra-2 in the embryo alone does not cause hypoxia or the giant osteoclast phenotype. Thus placenta-induced hypoxia during embryogenesis leads to the formation of giant osteoclasts in young pups. These findings offer potential targets for the treatment of syndromes associated with increased osteoclastogenesis.